WeWork's Financial Gamble
WeWork is seeking $500 million to finance its growth from the bond market for the first time. Although this may mean cheaper financing for WeWork, it has provided a rare glimpse into the startling numbers behind its international expansion.
The co-working now has a global portfolio of more than 14 million square feet, approaching the size of the entire office and retail space ion London’s Canary Wharf district. It is now paying at least $18 billion in rent for that space, according to Bloomberg.
The revenue growth due its rapid expansion was in excess of 100 percent. On the other hand, costs are rising faster, resulting in a net loss of $934 million last year. Its revenue growth is outpaced by the increase in costs. A big component of the cost is in the general and administrative costs used to buy back stock from employees in last October.
In the summer of 2017, WeWork raised $4.4 billion from Softbank to support its aggressive global expansion plan. This funding has accelerated WeWork’s capability in luring tenants from different geographic locations and with different industry background. Its original targets are companies are startups and small businesses.
However, recently, in order to boost the occupancy, WeWork now boasts members from about 22% of the Fortune 500, including HSBC, General Motors, and Microsoft. In order to support its current size, WeWork needs to reach at least 60 percent occupancy.
WeWork’s rapid expansion has resulted in an eye-watering rent bill that it’s now seeking to manage by diversifying into owning or managing buildings instead of just renting them. The company has committed to pay at least $5 billion in rent by 2022, with a further $13.2 billion due starting in 2023.
Taking on debt adds risk to a company whose business model hasn't been tested in a downturn. Given that its members typically sign monthly or annual leases, a drop in demand during a recession would mean the rents it charges tenants would fall, while the payments it owes to landlords would stay constant.